Pound Pulls Back as Dollar Gains on Iran Tensions

Key Moments

Geopolitical Tensions Lift the Dollar, Pressure the Pound

The GBP/USD pair retreats to the vicinity of 1.3500 in early European trading on Wednesday. Persistent frictions in the Middle East are supporting safe-haven demand for the US Dollar (USD) at the expense of the British Pound (GBP). Market participants are also positioning ahead of the US August employment report due on Friday.

According to CNBC, the United States and Iran exchanged a fresh series of attacks on Tuesday, with American forces targeting Iranian positions around a key waterway and Tehran stating that it had carried out a retaliatory operation against US interests across the region.

US President Donald Trump said the strikes were in retaliation for Iran trying to put mines in the critical waterway and for an earlier attack on a military base. He warned of more attacks to come if Tehran responded.

BoE’s Bailey Plays Down Immediate Inflation Threat

Bank of England (BoE) Governor Andrew Bailey signaled a measured stance on the inflation outlook, indicating that the United Kingdom (UK) is not currently facing pronounced second-round inflation pressures. Market pricing, as cited by Bloomberg, reflects expectations for a 25 basis points (bps) rate increase this year, with another move anticipated by the spring.

“We’re seeing quite subdued second-round effects, I think we’ve seen a softening labor market for some time now,” said Bailey. “I’ve taken the view that I think we can watch this situation for the moment,” he added.

UOB: Downside Risks for GBP Remain, 1.3480 in Focus

Analysts at UOB Group continue to adopt a cautious outlook on the Pound. They note that last Friday (28 Aug, spot at 1.3595) they had indicated that GBP “could edge lower,” but initially thought “any decline could be contained within a 1.3550/1.3645 range.”

After the currency slipped to a low of 1.3527, they observed yesterday (31 Aug, spot at 1.3540) that “the risk remains on the downside, and the level to watch is 1.3480.” UOB further states that they “will continue to hold the same view as long as GBP holds below 1.3600,” while keeping 1.3600 identified as the “strong resistance” threshold.

Technical Picture: Constructive Bias Intact Above 100-Day SMA

On the daily timeframe, GBP/USD retains a mildly positive technical tone as spot prices remain above the 100-day simple moving average (SMA) and the lower Bollinger Band. This configuration points to buying interest on pullbacks. At the same time, the pair continues to trade below the middle Bollinger line, signaling that bullish momentum has yet to fully take control. The Relative Strength Index (RSI) hovers around 47, consistent with neutral to slightly consolidative conditions.

On the upside, initial resistance is seen at the middle Bollinger band near 1.3550. A daily close above that zone would expose the upper Bollinger Band around 1.3665. On the downside, nearby support is located in the recent trading area around 1.3500. Below that, the 100-day SMA at 1.3443 and the lower Bollinger Band at 1.3435 form a key support cluster; a break under this region would challenge the current constructive outlook.